Health service levy will not hit markets: brokers

GOOD PROGNOSIS:：Banking conglomerate Credit Suisse has said that the 2 percent premium on additional income is ‘too minor to have an impact on investment behavior’

by Kevin Chen / Staff reporter

Wed, Oct 03, 2012 - Page 14

The government’s plan to levy a 2 percent supplementary premium on individuals’ additional income — a measure said to be aimed at helping keep the cash-strapped National Health Insurance system afloat — is not expected to overly dampen stock market sentiment, a foreign brokerage said yesterday.

Credit Suisse said in a research note that retail investors would not welcome the government’s latest proposal, which involves the imposition of the 2 percent supplementary premium on income earned from stock and cash dividends.

On Friday, the Department of Health announced that, beginning next year, the government plans to collect the extra insurance premium on non-payroll income, such as the interest accrued on savings, bonuses, wages from second jobs, rental income and stock dividends.

The local bourse was hard hit earlier this year by uncertainties which emerged following a government proposal to levy a capital gains tax on stock investments. However, the department’s new measure again raises concerns that pressures to sell could emerge during dividend season — a time of year when listed companies reward shareholders with additional, non-dilutive shares or through cash dividends, local media reported.

Under the government’s plan, the 2 percent supplementary premium is to be applied on cash dividends exceeding NT$5,000 and on stock dividends based on the face value of NT$10 per share.

On Monday, the Liberty Times (the Taipei Times’ sister newspaper) quoted Grand Fortune Securities Co (福邦證券) chairman Jerry Huang (黃顯華) as saying that the government’s new measure would punish investors buying blue-chip stocks — particularly those of companies whose earnings have held up well during the economic downturn and which tend to deliver the most generous dividend payouts.

The paper also cited Taishin Securities Investment Advisory Co (台新投信) chairman Andy Wu (吳火生) as saying the local stock market is likely to lose steam next year because of the double hit of both capital gains taxes and the supplementary premium measures.

However, Credit Suisse considers such concerns to be overstated.

“We think a 2 percent levy on dividend income is too minor to have an impact on investment behavior. As such, we do not expect the market to react as negatively as it did to the capital gains tax proposal,” Credit Suisse strategist Jeremy Chen (陳建名) wrote in the note.

Moreover, Credit Suisse said most retail investors would still likely snap up stocks that offer higher dividends because they view these shares as a source of income, compared with other types of investments.

“The TAIEX’s dividend yield of 3.5 percent is attractive, versus the regional average of 3 percent, and a 10-year government bond yield of 1.17 percent,” Chen wrote.

In Asia, the TAIEX’s dividend yield is about the same as Hong Kong’s, but higher than India’s 1.7 percent, South Korea’s 1.3 percent, Malaysia’s 3.4 percent, China’s 3.4 percent, Thailand’s 3.4 percent and Japan’s 2.6 percent — although it is lower than Singapore’s 3.6 percent and Australia’s 4.5 percent, Credit Suisse data showed.